Bits Bucket And Craigslist Finds For September 10, 2006
Please post off-topic ideas, links and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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i am sure this was postet earlier but this topc is very telling how the data that is mentioned in the news is very often crap.
First, CS blows the Census Bureau data apart, who reported new home sales down 13% nationally in the 2Q, versus the 23% declines reported in the CS builder universe of nine large public companies. Then they point out why the big gap, the Census doesn’t back out cancellations, which for 2Q were reported by the public companies as 35%.
the rest of the very good story from russ is backed with lots more details
http://www.xanga.com/russwinter/527272203/macro-data-on-housing-not-adding-up.html
Where is the BusinessWeek everyone’s been talking about “How Toxic is Your Mortgage?” I’ve seen two issues at newstands dated September 18, one is called the “Competition Issue” and the other one has hot air balloons with the best companies to work for, neither of them had the article.
It’s for November 11 I believe. It has a snake wrapped around a house on the cover.
Let me find it for ya.
Here it is:
http://www.businessweek.com/magazine/content/06_37/b4000001.htm
Oops. SEPTEMBER 11
You might have to run to a bookstore to find one.
more from mish on inflation/deflation
10 courageous 12 month predictions
http://globaleconomicanalysis.blogspot.com/2006/09/inflation-du-jour.html
Whether general inflation or general deflation is what we will be in for, is the topic I’m primarily interested in. I use “general” in the above statement because I do think that yes, some prices will go up while other prices will fall, whether the crisis is labeled “inflationary” or “deflationary.” In the Great Depression, one would probably be able to find higher prices. Whatever is in more demand when the supply is curtailed should go up in price. Microeconomics.
If one simply invests 10% of his portfolio in precious metals and 30% into government bonds and cash, I think his portfolio will be safe.
Very interesting and a logical descent of prices across the board, thanks jmf.
i am very undecidet wich camp is correct.
mish seems to get traction with his arguments. on the other hands is to inflate the only way for the us to get rid of all their debt.
this will be the key question!
http://www.immobilienblasen.blogspot.com/
Mish is wrong for now, but maybe right in the long run. The Fed is going to be FORCED to cut rates sometime next year as we will be entering a very slow (recessionary) economic period. I don’t think it will be ordinary either as the spending spigot is literally SHUT OFF for millions of heavy borrowers via their homes not rising.
Now, what’s a profligate Fed to do? What is a Fed chief who is on record talking about flooding money via printing presses going to do?
You guessed it, cut rates and FLOOD the economy with cheap easy greenbacks. They will destroy the dollar to get the US consumer to spend - that is the great case for gold/silver.
After this flood we may see deflation, but inflation is an increase in the money supply, and an increase in the money supply is what we are going to get FIRST, deflation - if it comes, will come later…IMO…
A big missing piece of the puzzle is Fractional Reserve Banking which basically has a 0% reserve requirement right now. I say basically because bankers are smart and know how to move money.
If FRB requirements are at zero they have tapped out that source of inflation. The only way to keep this going is by printing more money and lowering rates. Well, rates are already historically low.
Ben better fuel up the choppers and figure out how to push on those strings.
This is a topic not discussed here for a while: the Fed is low on ammunition to fight what’s coming, inflation or deflation.
- 0% reserve requirement
- Very low interest rates
- HELOC and consumer credit way to large
- Business will be hurt and lower spending in a recession
- Business inability to drive the economy out of recession
That leaves only the government, but they are in too much debt and would have to raise taxes.
There is very little wiggle room here. By inching up rates Greenspan and the Fed made a bet…..and lost.
By George, I want a 2% 15 year fixed mortgage. I’d settle for a 1% 30 year fixed. That ought to get things moving.
Not only do I want it, I deserve it!!!
LOL. “Mish is wrong for now, but maybe right in the long run.” Every forecast is right sooner or later!
I think Mish jumps to a conclusion and then looks for evidence to support his case. That’s just the opposite of the scientific method. I no longer read his blog.
The ‘Federal’ Reserve can not and does not “flood” the economy with money. Money does not exist until it is borrowed. All it can do is lower the prime rate, hoping more debt saps (consumers) take the bait. If they don’t - because they can’t (house is worth less than what they already owe, refuse to buy a house that is dropping in value, inability to service new debt, how many cars does one person need?) then it won’t matter how low rates go.
And there is a limit to how low rates can go. Banks are in the business of selling a product - debt. Interest charged is the markup - the profit. The lower the interest rate, the lower the profit. Rates are dropped as volume increases, rates increase as volume decreases - all in the name of profit.
Nothing to do now but sit back and watch the debt implosion. Depression II is on deck - and it will be much worse than Depression I.
Better get your houses in order…
“They will destroy the dollar to get the US consumer to spend - that is the great case for gold/silver.”
And, pray tell, what is the motive of the Fed to do this? What does the Fed gain directly from a weak dollar? Nothing, most of us can probably agree. So what external motive would cause the Fed to stab itself in the eye and carry out such a policy? At best the answer would be speculative. Probably it would be paranoid. Now it’s fine to state an opinion, but it’s better to phrase it as such unless you back it up with good evidence.
It’s called the New World Order!
Do your home work.
…also, that is exactly what the Fed has been doing for the past few years and no fortunes have been made from Gold.
Let me repost the quote so the above statement can be taken in context:
“You guessed it, cut rates and FLOOD the economy with cheap easy greenbacks. They will destroy the dollar to get the US consumer to spend - that is the great case for gold/silver.”
As was said above, they have already done this, how much further do you think they can go? And they are still doing this, as credit standard have been pretty loose until now. Market mortgage rates haven’t actually increased very must despite all the Fed hikes. Sure they are a’lendin’, but the folks out there ain’t a’borrow’.
Inflation is the easist path for any government. In reality, some prices will go down, but they will be the non-essential things you don’t need, like TV’s, electronic toys, gas guzzeling cars, etc. Things like energy, food, water, etc will be going up.
Oh, and for the record, inflation is not defines as rising prices but as money being worth less. This is controlled by the gov/FED RESERVE.
“What we have is a recipe for enormous financial losses. I believe the countdown into when we start to see more data points in the form of bombs should be measured in days, not weeks.” From Bill Fleckstein’s article today.
“DAYS”
Holy Moly. You guys were right about the Labor Day turning point
I have been a Fleck subscriber for years and I can unequivocally say that he feels we are in serious trouble. He has been bearish for a long while but still felt the market could rally, hence he was very light in his short positions, all the while adding to his metals.
He is now talking and ACTING on what he feels is the ENDGAME, there is NO WAY OUT, the Fed is boxed in, consumers don’t have the funny money anymore, prices on houses are coming down, wages haven’t gone up, prices for essentials are through the roof, credit cards are charging double what they did last year, tuition is up everywhere, etc…etc…etc…
I agree, the endgame is fast approaching for a debt delusioned, heavy spending foolish society that NEEDS to learn a lesson.
Link?
jannifl;….Can you post Fleckstein’s link ?? I would love to read it….Thanks….
Fleck is a subscription site: http://www.fleckensteincapital.com - it is cheap as far as newsletters go, Daily Rap and Daily AskFleck for a hundred bucks…well worth the price.
sorry, I didn’t see that you were asking Jan for the link, I think his once monthly posting for free can be found on MSNBC it is called the Contrarian Chronicles, if you search for that you can find it.
Thanks Dukes……
Sorry I just read your request. I read the free weekly postings on MSNBC, “Contrarian Chronicles”.
Lets see if this does it.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TechCrashSummerAllOverAgain.aspx
Yep, it is there, my first link!!
This reminds me of something that has been bothering me. How long have I been writing on this blog?? I am trying to put it into my personal historical bubble framework. I remember at first we all posted anonomously-mostly. But some people got really nasty, so we had to all register. Which was a good thing as you could tell if you were talking to the same person. Then we were able to click on our name and it would tell us how long we were a poster. Then that was cut out in the next evolution. I am terrible with timelines. I remember reading the book, “The coming housing crash”, when it came out. Was that before or after this blog? I know I have read Bill Fleckenstein for a long time too.
Why don’t you send Ben $100 for the upkeep of this Blog, before contributing to any of these over hyped commentators.
I have been in real estate for 30 years, and Ben was the only one who caught this bubble early with conviction and staying power. This is truly the “No Spin Zone”.
What a moronic statement david cee. Fleckenstein doesn’t simply write about real estate, he writes about the markets and economic trends, and I don’t think he is over hyped - he provides an excellent service at a low cost. And, NO Ben WASN’T the only one who caught this bubble, again - what a moronic statement.
P.S. Ben also provides a good service and I hope more people donate to him for his time.
Fleckenstein refuse to go on “Bubblevision” (main strem media). If anything he is underhyped!
This is the appropriate thread for this (i.e. I don’t want to waste a real thread on it).
As an academic who does some research with Google, I find the new ads fascinating. Google works at the word level, not the sentence level, and this site is a classic example on how this breaks down. Google sees all these real estate words but does not understand that we are talking about it in a negative context. As a result we get a slew of ads that are quite possibly the least likely ones for any of us to click on.
Yes, this is definitely the wrong blog for the “Option One” mortgage ads…
isn’t it ironic, don’t you think?
A little too ironic
Moronic?
Shhh, quiet
Walker these ads help pay the rent.
Nobody in here, but us chickens.
Well, that’s the point. I am not exactly sure how sites get revenue from the ads (Google gets revenue by selling the key words), but I suspect that if we are not clicking on the ads, then Ben is not getting as much ad revenue as he could be getting.
On the other hand, if the ads were about gold, he might get some clicks from some people on the site. Makes me wonder if Google hasn’t thought about having a site custom tailor its key words instead of (stupidly) extracting them from the text.
“I suspect that if we are not clicking on the ads, then Ben is not getting as much ad revenue as he could be getting.”
Actually, some of us are clicking on the ads for that very reason.
SSSSSSSSSHHHHH
Walker:
You are somewhat misinformed about how the program works.
It is true, that google’s program (Adwords) does indeed use keyed words to link things up. Which is why there are lots of housing and mortgage websites advertised here.
However, the owner of the site can DICTATE what sub-keys s/he wishes to use.
Thus, Ben could go in and put in keywords for “gold” or “housing bust” and what not to get some gold sites or more appropriate ad sites up here as an example.
Ben simply isn’t using Adwords to it’s fullest potential. He may want to get someone to help him with that.
Many people have been doing this as their sole income (including someone very close to me). They pay google X amount to direct traffic to their site, and then send people on to other sites, getting Y amount FROM google. You simply make sure that (Y times the # of clicks) is GREATER than (X times the # of clicks). People call it “Adword arbitrage”. As it was really successful (for some) competition increased, and it is less so now.
The point:
BEN: you need to have someone help you with your Adwords campaign. You can more effectively target your ads, and given the traffic on your site I will bet you can easily make into the high 6 to maybe 7 figures.
THAT SAID: mortgage companies/RE machine pays way more than almost any other sites do. Thus, even with poor relevance, you may make way more using these sites than a more refined directed approach. (as many people will accidentally find your site, and then hit the Option One Mortgage banner as example)
You’re a smart guy. You have the traffic flow to make big bucks. If you’re not, have someone help you with the Adwords program. If nothing else, Google itself will help you, as you have a popular site, and they make money when you make money.
regardless, you deserve the $$$.
(the above info may well be worth more than I could possibly ever “donate”, although I myself hit the donate button as well)
pullease, no more comments on this. silence is golden.
Agree!
I hope Ben makes lots of $$$ of the ads. Click away folks!!
Earlier this summer it looked like the ilks of Home Depot were on their way down with the slow down in RE; Less people in the store shopping and a larger pool of people hanging around outside looking for work.
However on my walks around town this past week I’ve noticed more people working on their homes: more landscaping, more painting, more recarpeting, etc. All of the work is being done for resale on houses that have been on the market and not sold. It would suggest to me that it is too early to short this industry effectively at this time.
Here’s a rehabber that got in over his head. Sounds like he really did intend to improve the property, but now “the tide has gone out” as they say…
Financial Dilemma
This was a good link Mozo, I especially liked this guy who was replying to the first guy - notice the desperation “I JUST WANT OUT”…sorry Charlie, that is the MAGIC of real estate in a down market…there is NO OUT! Cue the alligator…here is the story, curb the need for sympathy:
“Chris, I have a similar situation. I am absolutely embarrassed at my rehab. And some others on this board are probably shaking their heads at me because I’ve complained so much about it. It makes me feel stupid for even buying the place. My rehab has been on the market for over 150 days, after the 90 day rehab, total 5 months. I bought it for $100k, put about $40k into it, and now I have it listed for $148k, after dropping the price several times from $184k. I overpriced it to start with, which was a fatal mistake.
Still no takers. I believe the property is now stigmatized. Nobody wants it. It’s on a busy street, it’s been on the market a long time, it has a wet basement. I just want out. Similar properties sell for much more than my listing price. I just want it gone. I may need to drop it again and take a $20k loss or something.
My goal is to just get out of this house from hell and owe money on my credit cards. I don’t have cash to pay for the loss, I would need to take cash advances out. My advice for you would be to not hope for appreciation, because it may not happen. Get rid of the property and take the loss. Of course I CAN’T get rid of mine, and I’ve tried everything. Every realtor I talk to scratches their head as to why it won’t sell.
So Chris, don’t hold onto a losing property in hopes it will appreciate. Try to somehow pay for the loss, and get rid of the house.
And yes, I still like this business, and still want to succeed just like you do!
Tim (ME)”
their semms to be a lot of (hidden) pain out there.
some guys really don´t get it.
If property values go up 5% a year historically and you have a property worth xxxx how long will take you to recoup any money spent. What will that property be worth in fifteen years. Most real estate deals will end up being good deals if you got time.
Kevin Sullivan
Florida
How’s he going to refinance into a commercial loan? Don’t you need a minimum of 20% down for a commercial loan??
my old joke (from the last downturn) was:
what’s the difference between syphilis and condos?
in a down market you can rid of syphilis.
“Instead of selling, I could probably refi to a 20-yr commercial loan at $250k and take a beating monthly for 2 years to lose that same $25k in the hope that the property will appreciate sufficiently”
————————————————–
that’s what has a lot of flippers in trouble, the irrational belief in “appreciation.” In 2 more years the words “real estate” and “appreciation” will no longer be automatically linked.
I’ve been watching condo listings in my area on craigslist. This one guy has been trying to sell his overpriced closet for a few months now. Every week there’s an “open house” at the place, which I assume nobody attends because it just gets relisted every week at the same price. But just this week he finally reduced it $16,000 — as if paying $476/sqft is really any better than paying $490/sqft. Here’s his latest ad:
$565900 OPEN HOUSE The Continental 2BD/2BA Unit 1019 Sun 10 fr 1-5.
http://washingtondc.craigslist.org/nva/rfs/204761286.html
But he also now has 2 competitors who already undercut him:
$549900 OPENHOUSE SUNDAY 1-4PM, AMAZING VALUE! THE CONTINENTAL 2BR/2BA
http://washingtondc.craigslist.org/nva/rfs/205123431.html
$470000 Great City Condo Without the Hassle of DC - 1BR, 1BA, Den
http://washingtondc.craigslist.org/nva/rfs/203079016.html
I have seen many other listings at the “Continental” but they aren’t there anymore. Who knows if they actually sold, or they just gave up.
I’m going to wait until half the units in the building are for sale at around $200,000 before considering a purchase. I bet I will get my price eventually.
Don’t buy them from the sellers in six months. Don’t buy them from the bank in a year. Buy them from Resolution Trust Corporation in 18 to 24 months.
I agree with Bill. While admittedly, I dont know anything about DC - I do understand fundamentals. Whatever you can rent it for and cover the mortgage is what its worth. If that only means $200,000 for 1br/1ba then you may have to wait until RTC is selling units…
I assume DC has good employment, stable gov jobs, etc. It may be comparable to other high-end areas such as South ‘OC, and in that area I would only pay $150,000 for a 1br, period. In other areas such as LV and Phoenix, I’ll give em $60K tops for a conversion - take it or leave it. Remember its your money and credit reputation.
Let me fill you in on the local Ballston area…there are cranes on the left, on the right and all over due to condos in mid construction. Why anyone would buy a condo right now for half a million dollars is incomprehensible.
Thanks Dan I’m going to check it out for curiosity
He must be hurting to offer agents the full 3%!
Hi peeps,
Can someone clarify for me when it is said that you shouldn’t pay more than 28-30% of your monthly income on your mortgage do they mean gross or net? Also, how about housing expenses, is this included in this percentage as well? I am trying to gauge my affordability. My income is 120k. I would like to buy in ‘07, been mighty patient for years now. Thanks!
Just based on 28% Debt ratio and you gross income of $120,000, I would say no more than $400,000 loan amount (high $400k’s would be pushing it). This is based on the traditional FNMA / FHLMC loan guidelines put in place sometime after the Depression (28% mortgage debt to income). This is what prices used to be based on, before about late 1990’s, then low or no down came into vogue and then later of course the exotics/toxics, which is why we are where wwe are now (economically).
The other debt ratio is 36% (of all of your credit report listed payments). In other words you add the proposed mortgage, prop taxes, insurance (called PITI) to your minimum credit card payments, car payment, student loans, etc. This should be less than 36% of your gross income.
The banks actually know exactly the default rate based on these typical guidelines (if 28% debt ratio and down payment and fixed rate with above 660 credit score - almost zero default rate). So if you meet these guidelines, you should be okay.
One caveat, dont purchase home that is not affordable to the median household income in your area, otherwise when you want to sell, you may have problems finding people to qualify (you have a very high income compared to most). Look for my post yesterday for more info or email me at chrisc@rcacostacpa.com if you want more info. I am not selling anything or going to charge you. I just don’t like seeing people get screwed and few people are astute enough to listen to wise advice.
And keep reading this blog, because there are a whole lotta people here who have knowledge and aren’t trying to “sell” you or B.S. you…
This guy is hosed.
http://phoenix.craigslist.org/rfs/205407038.html
Doesn’t he realize that any rational investor wouldn’t even pay half of what he is asking as a rental?
Nice lawn.
Chrisusc - Thank you very much for taking the time to respond to my post. Wow only a 400k loan huh. I was looking at houses in my area no more than 510k with 40k down, so a loan of 470k - 480k. Other than my 350./mo school loans I have no debt, zero. Everything else I pay cash. I don’t plan on moving around, as I have a child in school, so hopefully I can live there for at least 10 years.
I plan on getting a fixed rate definitely. The house I was eyeing originally was priced at $580k in May, when it was first listed, then 1 month ago they dropped it to $550k. I still think it is too expensive. 3 bed/2 bath. Per zillow the prices have come down a bit in the area. I have seen a house in the neighborhood recently sell for $513k. On the 550k house the owner is carrying 2 mortgages! I know this because on the first open house I went to for the house showing back in May they were just moving out. Per my realtor he says they were moving to a larger house they just bought. Anyhow, I am not letting my emotions sway me in any way and I am patiently waiting for the house to come down more and make a low ball offer either in the winter, or in early ‘07. What do you think?
Appreciate any comments/input. In the meanwhile I will continue reading this blog. Lots of good information. Thanks again!
The stats for the city I live in presently (I rent) and plan to buy in:
Average
Median household income
(per year) $86,453
Sales tax
8.25%
Housing City Stats Best places
average
Median home price $444,032
Home price gain
(2-5 year annual gain) 30.42%
Auto insurance premiums
Median age 35 36
Residents with college degree 29%
Here’s what I might do if I were you:
1. Get a title report on the property you want to buy. You can order it from any title co. Then you will know exactly what the sellers are into the loan sharks (banks) for.
2. Check what they paid for the home and when (on title report).
3. See what the home was selling for in 1999 thru 2001. This will give you a good basis for what it is really “worth” with normal lending standards. I wouldn’t pay more than that.
4. If you still decide to make an offer then you will know much you can lowball them. As you stated, they are carrying two mortgages plus the new one…
5. Review the title report for info on what all the neighbors paid and when - this will be listed. This may clue you in on what the typical prices have been over the years.
And as you stated, time is on your side. You have the money the sellers want. Maybe they will settle for $400,000 , when you see the title report and see what they owe you will know how low they can go. Keep in mind that it is still early in the game - prices will fall in SoCal probably in some places 50% or more (this is under a normal market correction). But right now, there are still people who are not that desperate. If you wait long enough you will get a home either from a deperate seller, from the bank or from the RTC (gov org that will sell thousands of homes at auction like last time).
If I use the $86,000 income level for the area and normal lending standards, this yields about $300,000 for average sale price in the area. Now I understand that we may never go back to fixed rate loans with 28% debt ratios as typical buyer financing, but I submit that prices always go back to the normal.
In the end, if you are happy with the neighborhood and are going to live there for 10 years then you will probably be okay as long you can make the payment. So that brings me to the final consideration: are you in a recession proof industry (gov, food, utilities, etc.). If not then try to stay in the $400K loan amount / price range. In other words, buy less house than you financially qualify for so you have cushion/savings just in case.
Be sure to invest the money you dont spend on the home (by lowballing). Max out retirement plas, setup college plan for child, etc.
It sounds like you are sharp and are on the right track.
I like your info Chrisusc. Regarding the title report I was not aware of that. Will give it a try. Thanks again!
LA working gal,
Just chiming in to say Chris’ suggestions are 100% right on, IMHO. My family was in real estate (brokers/investors) for decades in the LA area (and Texas). There is good reason to believe prices will be back to 1999/2000 levels at some point in time — unless wages really start taking off.
No reason to rush into this. Best to keep an eye on things and be sure we are not heading for the mother of all recessions/depressions.
Definitely a terrific group of minds here. Hopefully Ben continues to run this site for many years to come, as I believe the advice found here is better than what you’d get even if you paid top dollar for it. You’ll know when/if to buy by reading here, IMHO.
Good luck!
Thanks for the vote of confidence. Take care.
I have a new theory about why hedge funds like to invest in subprime mortgage debt. They are counting on the govt to put together a stealth welfare program in the guise of mortgage payment assistance for anyone who accidently bought a home they could not afford and now faces the near-term prospect of foreclosure. I expect Freddie Mac and Fannie Mae to push this proposal very vocally, and the hedge funds who bought the toxic mortgage debt to bribe legistlators through backdoor channels to come on board. At the end of the day, the value of the toxic (highest-risk subprime traunch) mortgage debt the hedgies funded will climb very high, when the perceived is eliminated at taxpayers’ expense.
Some foreshadowing is provided here:
http://www.signonsandiego.com/uniontrib/20060910/news_1h10sichel.html
————————————————————————————————
HOUSING SCENE
LEW SICHELMAN
Banking on a safety net to help stem foreclosures
September 10, 2006
WASHINGTON – The lending business is marshaling its forces on an unprecedented scale to get in front of what possibly could be a monumental flood of foreclosures.
Mindful that conventional methods of reaching out to financially troubled homeowners simply don’t work, lenders, investors and loan servicers are joining with nonprofit counseling agencies in an attempt to coax reticent borrowers to come forward so they won’t lose their homes.
They’ve also persuaded the Advertising Council to launch a three-year public-service campaign aimed at convincing late payers to come out from behind their locked doors and talk to impartial, third-party counselors about how they can get back on the straight and narrow. Also on tap is a syndicated Spanish-language soap opera that contains subtle hints about what to do if you can’t pay your mortgage.
“We’re trying to create a comprehensive safety net to help people stay in their homes,” says Craig Nickerson, executive vice president of expanding markets at Freddie Mac. “It’s a new frontier for us, but it will mark our legacy in this field for at least the next five years.”
It’s too early to know how many owners will face the very real possibility of being unable to make their house payments. But already, 167,000 new families enter into foreclosure every three months, according to the Mortgage Bankers Association. And that could just be the proverbial tip of the iceberg.
With mortgage rates climbing, millions more borrowers with pay-option and interest-only loans face the prospect of larger payments in the coming months. Even those with more conventional adjustable-rate mortgages will be feeling the pinch.
According to an estimate by the PolicyLab Consulting Group, an Ithaca, N.Y., consulting firm with an expertise in housing economics, $375 billion worth of loans will adjust to higher rates this year and $1 trillion will reset in 2007. Couple that with higher energy costs, higher homeowners’ insurance premiums, higher property taxes, and it’s easy to see a disaster in the making.
“When the rate on these mortgages begins to reset,” says Ken Wade of NeighborWorks America in Washington, D.C., which provides training and other assistance for loan community development groups, “many borrowers who were just able to afford their homes with low-rate mortgages are going to be in for significant payment shocks.”
How significant? If the rate on a 5-year-old, $200,000 interest-only mortgage moves up just 1 percentage point, from 6.1 percent to 7.1 percent, and begins requiring a payment to principal as well as interest, the monthly cost would jump $409, from $1,021 to $1,430.
Now suppose a 7 percent, $200,000 loan in which the borrower can make a full payment, a minimum payment or pay something in between. Most people choose to pay only the minimum, which often isn’t even enough to cover the interest owed, so the difference every month was added to the outstanding balance.
If this was the case and the rate rose to 8 percent, again just 1 percentage point, the payment at the beginning of the sixth year would jump $928, from $643 to $1,571, and the borrower would owe $30,000 more than he started with.
Particularly hard-hit will be underserved borrowers who often don’t understand what they’ve gotten themselves into; are more likely to experience job loss, major illnesses and other life-changing events that tend to disrupt their ability to make timely payments; and have a much more difficult time recovering from financial trauma.
GS,
This is definitely my worst nightmare. I can see where the “govt” decides to buy up MBSs where the lenders “coerced” people into toxic loans.
How about a 40-year, interest-only mortgage where you pay NO principal until you decide to sell the house? I can definitely see it coming. Let’s hope and pray it doesn’t come to pass.
Today I noticed a shiny new pawn shop opened up in our area. A harbinger, I suppose.